Guide · Pension relief

Pension tax relief explained

How relief at source, net pay and salary sacrifice pension schemes give tax relief, what higher rate taxpayers must claim and a worked example. Start by ask your employer or provider whether it is relief at source, net pay or salary sacrifice. Your payslip shows pension taken before or after tax.

By Uthman ChoudhuryPublished 20 September 2026Updated 20 September 2026

Skip the reading: use the Pension Contribution Calculator for your own numbers.

How do you work out your pension tax relief?

Find out how your scheme gives relief. Ask your employer or provider whether it is relief at source, net pay or salary sacrifice. Your payslip shows pension taken before or after tax.
Work out your marginal rate. The rate on your last pound of income: 20%, 40% or 45%, or the Scottish equivalents. Between £100,000 and £125,140 it is effectively 60%.
Calculate the gross contribution. Under relief at source, divide what you pay by 0.8 to get the gross amount that reaches the pension.
Claim what is not automatic. Relief at source only adds 20%. Higher and additional rate taxpayers claim the rest through Self Assessment or a tax code adjustment.
Stay within the annual allowance. Total contributions including your employer's are limited to £60,000 a year, with carry-forward of unused allowance from the previous three years.

How does pension tax relief work?

Contributions to a registered pension are made from untaxed income, up to the annual allowance of £60,000 or 100% of earnings. The mechanics depend on the scheme. Under relief at source you pay 80% and the provider claims 20% from HMRC; higher rate taxpayers claim a further 20% and additional rate taxpayers 25% themselves. Under net pay the contribution is deducted before tax so relief is immediate at your marginal rate. Under salary sacrifice your employer pays the contribution in exchange for a lower salary, which also cuts National Insurance for both of you.

Worked example: £4,000 into a pension on £55,000

With relief at source the employee pays £3,200, the provider adds £800 and the basic rate band is extended by £4,000, saving a further £800 that must be claimed. Net cost £2,400. With salary sacrifice the same £4,000 goes in, income tax falls by £1,600 and NI by £80, so the net cost is £2,320: a relief rate of 42% against 40%.

What do people get wrong about pension relief?

Assuming relief is automatic. With relief at source, only the basic 20% is. HMRC does not chase you to claim the rest.
Mixing up gross and net. A “5% contribution” in a relief at source scheme is usually 4% from you plus 1% from HMRC.
Sacrificing below the minimum wage or a mortgage multiple. Salary sacrifice lowers your contractual pay, which lenders and statutory pay calculations use.

Compare the three methods in the pension tax relief calculator.

Frequently asked questions

Which is better, salary sacrifice or relief at source?

Salary sacrifice usually wins because it saves employee National Insurance (8% or 2%) as well as income tax, and all relief is automatic. Relief at source suits people without a workplace scheme, but higher rate taxpayers must remember to claim the extra.

Do non-taxpayers get pension tax relief?

Yes, under relief at source. Anyone under 75 can contribute up to £2,880 a year and the provider adds £720, even with no earnings. Net pay schemes give non-taxpayers nothing, which is why low earners are worse off in them.

How far back can I claim higher rate relief?

Four tax years. If you have paid into a relief at source pension as a higher rate taxpayer and never claimed, you can write to HMRC or amend returns for the last four years.